When people look at the iPhone and see that the high-end model is a lot more expensive than the low-end model, they say "Why would I spend an extra $100 on $10 worth of flash memory?"
The answer to that question is the same as the answer to "why are products being degraded?"
Most of us think we have some idea of how an economy works. We think that a manufacturer makes a product, adds a bit of money to the amount it costs to produce,and then sells it at that price. We've also heard about supply-demand curves and such.
In the world where that is true, unicorns frolic with leprechauns over streams made of milk chocolate. In the real world, none of it is true. Manufacturers do not set prices based on the cost of production plus a profit margin, and the supply/demand curve is rubbish.
Here's where the degradation comes in.
When a manufacturer makes something, they price it at the absolute highest price the market can possibly bear. Doesn't matter if you're talking about peanut butter or cell phones or lumber. The price is set at the tippy top of what the manufacturer believes the market can stand, and not one penny less.
Then, once the price is set, the manufacturer does absolutely everything in its power to drive the cost of production as low as it possibly can. Building gizmos in China, using inferior quality ingredients--anything that will reduce the cost of manufacture.
The space between the highest point the market will bear and the lowest cost they can make it for is the profit.
A lot of folks naively think that if a manufacturer cuts corners and reduces the quality of a good, then people will stop buying it, and the manufacturer won't want that. That notion is rubbish.
First, it's rubbish because it's very rare for incremental degradation of quality to materially affect demand. People like M&Ms. People would still like M&Ms if they tasted like they were made of sawdust and turpentine. Never underestimate the power of nostalgia. (Case in point: Cracker Jacks DO taste like sawdust and turpentine!)
Second, if a few people stop buying it, so what? Say the manufacturer makes a change that reduces the cost of production by 7%, and 5% of the public stops buying it. Why on Earth would the manufacturer not do that? They still come out financially ahead! In fact, they come out even more ahead than you think, because they can reduce their production by 5% and have a corresponding 5% reduction in workforce, infrastructure, and fixed manufacturing costs....so their profit increases by slightly MORE than 2%.
And supply and demand curves? Ha! Give me a break. Supply, except in very few cases, is almost infinitely flexible; if the new Nike shoe is hard to find, it's because Nike has artificially held back supply. Demand? Don't make me laugh. Even supposedly "commodity" goods like crude oil or soybeans exist in a market distorted by futures and derivatives trading; it's easy for well-heeled people and institutions to manipulate the apparent demand, and thus the price, even if the supply doesn't move and the demand should nominally be constant. (If you really want a case study in artificially manipulating supply and demand, see the DeBeers diamond cartel; in theory, diamonds ought to be no more expensive than, say, emeralds.)
So: Companies charge the highest prices they can get away with, then cut every last corner they can to drive costs down. If they are publicly traded, they HAVE to--a public corporation is required by law to maximize its shareholders' return, and a company that fails to cut costs or raise prices may be sued by its shareholders.
